Tag Archives: Republicans

Zoning and Housing Affordability

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Vanessa Brown Calder has posted Zoning, Land-Use Planning, and Housing Affordability to SSRN. It opens,

Local zoning and land-use regulations have increased substantially over the decades. These constraints on land development within cities and suburbs aim to achieve various safety, environmental, and aesthetic goals. But the regulations have also tended to reduce the supply of housing, including multifamily and low-income housing. With reduced supply, many U.S. cities suffer from housing affordability problems.

This study uses regression analysis to examine the link between housing prices and zoning and land-use controls. State and local governments across the country impose substantially different amounts of regulation on land development. The study uses a data set of court decisions on land use and zoning that captures the growth in regulation over time and the large variability between the states.

The statistical results show that rising land-use regulation is associated with rising real average home prices in 44 states and that rising zoning regulation is associated with rising real average home prices in 36 states. In general, the states that have increased the amount of rules and restrictions on land use the most have higher housing prices.

The federal government spent almost $200 billion to subsidize renting and buying homes in 2015. These subsidies treat a symptom of the underlying problem. But the results of this study indicate that state and local governments can tackle housing affordability problems directly by overhauling their development rules. For example, housing is much more expensive in the Northeast than in the Southeast, and that difference is partly explained by more regulation in the former region.

Interestingly, the data show that relatively more federal housing aid flows to states with more restrictive zoning and land-use rules, perhaps because those states have higher housing costs. Federal aid thus creates a disincentive for the states to solve their own housing affordability problems by reducing regulation. (1)

This paper provides additional evidence for an argument that Edward Glaeser and others have been making for some time now.

Local governments won’t make these changes on their own. Nonetheless, local land-use decisions have a large negative impact on many households and businesses who are not currently located within the borders of the local jurisdictions (as well as some who are). As a result, the federal government could and should take restrictive land use regulation into account when it allocates federal aid for affordable housing.

The Obama Administration found that restrictive local land-use regulations stifled GDP growth in the aggregate. Perhaps reforming land-use regulation is something that could garner bipartisan support as it is a market-driven approach to the housing crisis, a cause dear to the hearts of many Democrats (and not a few Republicans).

Relegating Consumer Protection To The Shadows

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The Department of the Treasury released its report on Asset Management and Insurance, which follows on the heels of its report on the capital markets. The latest report calls for replacing the term “shadow banking” with “market based finance.” (63) The term “shadow banking” reflected a belief that there was a less regulated sector of the financial services industry that operated in the shadows of heavily regulated financial services sectors like banking.

While innocent enough as a matter of nomenclature, retiring “shadow banking” reflects the Trump Administration’s desire to reduce regulation across the financial services industry and to put an end to any negative connotations that the term shadow banking carries. The report makes this crystal clear:  “Applying the term “shadow banking” to registered investment companies is particularly inappropriate as the word “shadow” could be interpreted as implying insufficient regulatory oversight, or disclosure.” (63)

Given that the Trump Administration is focused on rolling back many of the provisions of Dodd-Frank, it is worth reviewing the changes that this report advocates. I focus here on how the report seeks to limit the regulatory oversight role of the Consumer Financial Protection Bureau:

Title X of Dodd-Frank expressly excludes the “business of insurance” from the list of financial products and services within the CFPB’s jurisdiction. Dodd-Frank also prohibits the CFPB from exercising enforcement authority over “a person regulated by a State insurance regulator.” A “person” is defined to be “any person that is engaged in the business of insurance and subject to regulation by any State insurance regulator, but only to the extent that such person acts in such capacity.”

There are, however, a limited number of exceptions where the CFPB may exercise its authority over the business of insurance and persons regulated by state insurance regulators:

• If an insurer offers a financial product or service to the extent that the insurer is engaged in the offering or provision of a consumer financial product or service (e.g., debt protection contracts that are administered by insurers on behalf of a bank); To supervise and enforce violations of federal consumer laws (e.g., violations of the Real Estate Settlement Procedures Act that relate to insurers);

• If persons knowingly or recklessly provide substantial assistance in an Unfair, Deceptive, or Abusive Acts and Practices (UDAAP) violation (i.e., if an insurer knowingly or recklessly supports a covered person or service provider in violation of the UDAAP provisions of Dodd-Frank); or

• To request information from a person regulated by a state insurance regulator in connection with the CFPB’s rulemaking, investigative, subpoena, or hearing powers.

Despite the general exclusions, these statutory exceptions create considerable uncertainty concerning what the CFPB can examine or regulate. Insurers are concerned that, if the CFPB interprets the exceptions broadly, it could potentially regulate insurers or the business of insurance in a manner more expansive than the statutory exceptions intend. Such regulatory actions could also be duplicative of actions undertaken by state insurance regulators.

Recommendations

Treasury recommends that Congress clarify the “business of insurance” exception to ensure that the CFPB does not engage in the oversight of activities already monitored by state insurance regulators. (108-09)

This recommendation seeks to further reduce consumer protection in the financial services industry. Republicans have been quite open with this goal, so there is really nothing hypocritical about this recommendation. It is just a bad one. There have been a lot of abusive debt protection contracts like credit life insurance products that are priced way higher than comparable life insurance products. Blocking the CFPB from regulating in this area will be bad news for consumers.

 

The CFPB Makes Its Case

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CFPB Director Cordray

The Consumer Financial Protection Bureau released its Semi-Annual Report. Given that the Bureau is under attack by Republicans in Congress and in the Trump Administration, one can read this as a defense (a strong defense, I might editorialize) for the work that the Bureau has done on behalf of consumers. The core of the Bureau’s argument is that it levels the playing field for consumers when they deal with financial services companies:

The Bureau has continued to expand its efforts to serve and protect consumers in the financial marketplace. The Bureau seeks to serve as a resource on the macro level, by writing clear rules of the road and enforcing consumer financial protection laws in ways that improve the consumer financial marketplace, and on the micro level, by helping individual consumers get responses to their complaints about issues with financial products and services. While the various divisions of the Bureau play different roles in carrying out the Bureau’s mission, they all work together to protect and educate consumers, help level the playing field for participants, and fulfill the Bureau’s statutory obligations and mission under the Dodd-Frank Act. In all of its work, the Bureau strives to act in ways that are fair, reasonable, and transparent.

*     *     *

When Federal consumer financial protection law is violated, the Bureau’s Supervision, Enforcement, and Fair Lending Division are committed to holding the responsible parties accountable. In the six months covered by this report, our supervisory actions resulted in financial institutions providing approximately $6.2 million in redress to over 16,549 consumers. During that timeframe, we also have announced enforcement actions that resulted in orders for approximately $200 million in total relief for consumers who fell victim to various violations of consumer financial protection laws, along with over $43 million in civil money penalties. We brought numerous enforcement actions for various violations of the Dodd-Frank Act and other laws, including actions against Mastercard and UniRush for breakdowns that left tens of thousands of economically vulnerable RushCard users unable to access their own money to pay for basic necessities; two separate actions against CitiFinancial and CitiMortgage for keeping consumers in the dark about options to avoid foreclosure; and against three reverse mortgage companies for deceptive advertisements, including claiming that consumers who obtained reverse mortgages could not lose their homes. We also brought two separate actions against credit reporting agencies Equifax and TransUnion for deceiving consumers about the usefulness and actual cost of credit scores they sold to consumers, and for luring consumers into costly recurring payments for credit products; and an action against creditor reporting agency Experian for deceiving consumers about the usefulness of credit scores it sold to consumers. The Bureau also continued to develop and refine its nationwide supervisory program for depository and nondepository financial institutions, through which those institutions are examined for compliance with Federal consumer financial protection law. (10-11, footnotes omitted)

Anyone who was around during the late 1990s and early 2000s would know that consumers are much better off with the Bureau than without it. This report provides some of the reasons why that is the case.

Cracked Foundation for American Households

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photo by shaireproductions.com

President Trump’s budget claims to lay A New Foundation for American Greatness. Whatever else it does, when it comes to housing it leads down a path to ruin for many an American family.

Here is just some of what he proposes: cutting housing choice vouchers by almost $1 billion; cutting support for public housing by nearly $2 billion; and getting rid of the entire $3 billion budget for Community Development Block Grants (CDBG). These are all abstract numbers, so it is worth breaking them down to a more human scale.

Vouchers.  Housing choice vouchers help low-income families afford a home. Republicans and Democrats have long supported these vouchers because they help tenants afford apartments that are rented by private landlords, not by public housing agencies. Vouchers are effectively an income subsidy for the poor that must be used for housing alone. The landlord is paid the subsidy and the tenant pays the difference between the subsidy and the rent. These vouchers are administered by local public housing agencies.

Nearly half of vouchers go to families with children, nearly a quarter go to the elderly and another fifth go to disabled adults. The nonpartisan Center on Budget and Policy Priorities has found that voucher dramatically reduce homelessness. It also found that voucher holders were likely to be in the workforce unless they were elderly or disabled. While vouchers are a very effective subsidy, the federal budget has only provided enough funds for about a quarter of eligible households. Trump’s proposed cuts would cut funding for more than 100,000 families. That’s 100,000 families that may end up homeless as a result.

Public Housing. Public housing has been starved of resources for nearly forty years. While some believe that public housing has been a failure overall, it remains a vital source of housing for the very poor. Trump’s proposed cuts to public housing operating and capital expenses means that these tenants will see their already poorly maintained homes descend deeper into decrepitude. Unaddressed leaks lead to mold; deferred maintenance on boilers leads to no heat in the winter – every building needs some capital repairs to maintain a baseline of habitability.

We must ask ourselves how bad will we allow this housing stock to get before we are overcome by a sense of collective shame. If a private landlord provided housing that was as poorly maintained as much of the public housing stock, it would be on a worst landlords list in local newspapers. The fact that the landlord is the government does not redeem the sin.

CDBG. The Community Development Block Grant funds affordable housing and anti-poverty programs along with community development activities engaged in by local governments. CDBG has broad support from Republicans and Democrats because it provides funds that allow local governments to respond more nimbly to local conditions. Local governments use these funds for basic infrastructure like water and sewer lines, affordable housing and the soft costs involved in planning for their future.

While these expenditures are somewhat abstract, recent press stories have highlighted that CDBG also funds Meals on Wheels for the elderly. While this is not a big portion of the CDBG budget, it does make concrete how those $3 billion are being allocated each year by local communities seeking to help their neediest residents.

*     *     *

Trump’s budget proposal is honest in that it admits to making “substantial changes to the policies and spending priorities of the previous administration . . .” Members of Congress from both parties will now have to weigh in on those substantial changes. Are they prepared to make Trump’s cuts to these housing and community development programs that provide direct aid to their neighbors and local governments? Are they prepared for the increase in homeless that will follow? In the increase in deficits for state and local governments? If not, they should reject President Trump’s spending priorities and focus on budget priorities that support human dignity and compassion as well as a commitment to local responses to address local problems.

Kafka and the CFPB

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photo by Ferran Cornellà

Statue of Franz Kafka by Jaroslav Rona

The Hill published my latest column, The CFPB Is a Champion for Americans Across The Country. It opens,

Republicans like Sen. Ted Cruz (R-Texas) have been arguing that consumers should be freed from the Consumer Financial Protection Bureau’s “regulatory blockades and financial activism.” House Financial Services Committee Chairman Jeb Hensarling (R-Texas) accuses the CFPB of engaging in “financial shakedowns” of lenders. These accusations are weighty.

But let’s take a look at the types of behaviors consumers are facing from those put-upon lenders. A recent decision in federal bankruptcy court, Sundquist v. Bank of America, shows how consumers can be treated by them. You can tell from the first two sentences of the judge’s opinion that it goes poorly for the consumers: “Franz Kafka lives. This automatic stay violation case reveals that he works at Bank of America.”

The judge continues, “The mirage of promised mortgage modification lured the plaintiff debtors into a Kafka-esque nightmare of stay-violating foreclosure and unlawful detainer, tardy foreclosure rescission kept secret for months, home looted while the debtors were dispossessed, emotional distress, lost income, apparent heart attack, suicide attempt, and post-traumatic stress disorder, for all of which Bank of America disclaims responsibility.”

Homeowners who reads this opinion will feel a pit in their stomachs, knowing that if they were in the Sundquists’ shoes they would also tremble with rage and fear from the way Bank of America treated them: 20 or so loan modification requests or supplements were “lost;” declared insufficient, incomplete or stale; or denied with no clear explanation.

Over the years, I have documented similar cases on REFinBlog.com. In U.S. Bank, N.A. v. David Sawyer et al., the Maine Supreme Judicial Court documented how loan servicers demanded various documents which were provided numerous times over the course of four court-ordered mediations and how the servicers made numerous promises about modifications that they did not keep. In Federal National Mortgage Assoc. v. Singer, the court documents the multiple delays and misrepresentations that the lender’s agents made to the homeowners.

The good news is that in those three cases, judges punished the servicers and lenders for their pattern of Kafka-esque abuse of the homeowners. Indeed, the Sundquist judge fined Bank of America a whopping $45 million to send it a message about its horrible treatment of borrowers.

But a fairy tale ending for a handful of borrowers who are lucky enough to have a good lawyer with the resources to fully litigate one of these crazy cases is not a solution for the thousands upon thousands of borrowers who had to give up because they did not have the resources, patience, or mental fortitude to take on big lenders who were happy to drag these matters on for years and years through court proceeding after court proceeding.

What homeowners need is a champion that will stand up for all of them, one that will create fair procedures that govern the origination and servicing of mortgages, one that will enforce those procedures, and one that will study and monitor the mortgage market to ensure that new forms of predatory behavior do not have the opportunity to take root. This is just what the Consumer Financial Protection Bureau has done. It has promulgated the qualified mortgage and ability-to-repay rules and has worked to ensure that lenders comply with them.

Kafka himself said that it was “the blend of absurd, surreal and mundane which gave rise to the adjective ‘kafkaesque.’” Most certainly that is the experience of borrowers like the Sundquists as they jump through hoop after hoop only to be told to jump once again, higher this time.

When we read a book like Kafka’s The Trial, we are left with a sense of dislocation. What if the world was the way Kafka described it to be? But if we go through an experience like the Sundquists’, it is so much worse. It turns out that an actor in the real world is insidiously working to destroy us, bit by bit.

The occasional win in court won’t save the vast majority of homeowners from abusive lending practices. A regulator like the Consumer Financial Protection Bureau can. And in fact it does.

Skinny Budget Sucker Punch

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The Waco Tribune-Herald quote me in Cutting Habitat Could Hurt Local Economy. It reads,

Last summer, through a series of tragic events, one of our longtime church members faced the frightening possibility of homelessness. She had lived with her father for more than 50 years and, following his death, she learned of a crippling reverse mortgage on their home. She couldn’t pay off the mortgage and so she had to find a new place to live.

Our congregation sprang into action. More than 50 people contributed to the purchase of a mobile home, but it required extensive remodeling, so several church members worked over 300 hours to make it livable. One handyman devoted about three months to the project full-time.

On Sept. 21, we presented her with the keys to her new home during worship. It was one of the most uplifting moments I’ve had in 23 years of ministry. This congregation-wide labor of love brought us all closer to one another and closer to God. It was a demonstration of the love of Jesus Christ and it was transformative.

Home ownership changes lives and changes communities. I serve as a board member and volunteer for Waco Habitat for Humanity. Since 1986, Waco Habitat has built and sold 168 homes and completed another 414 home repairs and preservation projects. Over the past three decades, the economic impact of all these services exceeds $6.9 million in greater Waco. In a community that generally tracks about 15 percent higher than the state average for poverty rates and 20 percent lower than the state average for home ownership rates, this impact cannot be overstated. It’s transformative as well.

The “skinny budget” unveiled by the Trump administration on March 16 proposes reducing federal spending on housing programs and assistance by 13 percent. Among other cuts, it seeks to eliminate the Community Development Block Grant Program; Home Investment Partnerships Program; Self-Help Homeownership Opportunity Program; CDFI fund, which administers the New Market Tax Credit program at Treasury; and entire Corporation for National and Community Service, which implements the AmeriCorps program.

One reason I work with Habitat is because it offers a hand up, not a hand out. If these cuts are approved by Congress, they will devastate Habitat’s ability to offer that hand up. Other local housing agencies and organizations will see a similarly crippling effect.

Fortunately, this is just the first pass of the federal budget, and many members of Congress — including many Republicans — have already voiced opposition to it. For instance, Rep. Hal Rogers said: “While we have a responsibility to reduce our federal deficit, I am disappointed that many of the reductions and eliminations proposed in the president’s skinny budget are draconian, careless and counterproductive.”

David Reiss, director of academic programs at the Center for Urban Business Entrepreneurship, echoes this. “Terminating these programs out of the blue is like a sucker punch in the gut of countless communities across the country.”

What’s the CFPB Ever Done for Housing?

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TheStreet.com quoted me in What’s the CFPB Ever Done For Housing? Quite A Lot. It reads, in part,

The Consumer Financial Protection Bureau grew out of the housing market crash of 2008 and subsequent Dodd-Frank legislation. As a watchdog with teeth, the CFPB’s job is to protect homebuyers from the predatory mortgages that helped sink the economy nine years ago. And it worked.

In theory.

Problem is, for some would-be homeowners, the CFPB is an inconvenient middle-man, adding more red tape to an already impossible situation. In short, it isn’t perfect. But with the Trump administration threatening to tear the whole damn thing down, you’ve got to wonder, is the CFPB really doing more harm to the housing market than good?

How we got here

Pre-housing market crash, the mortgage lending world was a vastly different, Wild West sort of landscape. Dodd-Frank and the CFPB entered the scene, in part, for lending oversight in that uncontrolled housing market. For example, once not-uncommon ‘liar loans,’ which were largely based on the borrower’s word and not much else-for instance, someone saying they made $100,000 a year to qualify for a huge home even though they made $30,000-are now illegal thanks to Dodd-Frank and the CFPB. Mortgage companies cashing in at the expensive of uneducated buyers happened, and it happened a lot.

“Just about everybody I talked to prior to 2008 thought the lending climate was out of control,” says Chandler Crouch, broker and owner of Chandler Crouch Realtors in Dallas-Fort Worth. “People were saying it couldn’t last. It just didn’t make sense. Lending requirements were too loose. Everybody, from Wall Street to the banks to the loan officers to the consumers, was being rewarded for making bad decisions. Lending needed to tighten.”

*     *     *

“The CFPB has been criticized for restricting mortgage credit too much with its Qualified Mortgage and ability to repay rules,” says David Reiss, a law professor at Brooklyn Law School who has practiced real estate law since 1998.

This was all done to ensure buyers could afford their home and not end up in foreclosure or short sale (and also avoid another economic collapse). These rules also bar lenders from predatory loans like massive balloon loans and shady adjustable rate mortgages.

*     *     *

Will no CFPB = housing hellscape?

Let’s say the Republicans get their way and the CFPB goes poof. What happens?

“You’d see an expansion of the credit box-more people would be approved for credit,” says Reiss. “To the extent that credit is offered on good terms, that would be a good development. I think you would see more potential homebuyers being approved for mortgages which would drive up home prices in the short term as there would be more competition.”

But then there’s the opportunity for those really bad loans to come swinging back, which harm homeowners would have in the past and also trigger fears of another housing collapse.

“Liar loans would definitely have a comeback if the CFPB and Dodd-Frank were dismantled,” says Reiss. “The Qualified Mortgage and ability to repay rules were implemented as part of the broader Dodd-Frank rulemaking agenda; without those rules, credit would quickly return to its extreme boom and bust cycle, with liar loans a product that would pick up steam just as the boom reaches its heights…We would bemoan them once again as soon as the bust hits its depths.”